The Importance of Professional Skepticism in an audit of ... · The Importance of Professional Skepticism in an audit of Financial ... It is at the core of audit quality and reliability

The Importance of Professional Skepticism in an audit of Financial

Statements

Presented to the 6th iCPAR Annual Seminar

5th October, 2017

CPA Dr Twaha K. Kaawaase (FCCA)

2017/10/10 Professional Skepticism and Audit of Financial Statements

2

1. The meaning of Professional Skepticism

2. Why is Professional Skepticism important

3. When and How should PS be applied in audits

4. Pitfalls of Professional Skepticism

5. IFAC Tools to assist SMPs

AG E N DA

SNG SEJJAAKA KAAWAASE & CO

2017/10/10 PRESENTATION TITLE HERE3

“Being skeptical is having doubts that a claim or statement [or an assertion] is true”

The Oxford Advanced Learners dictionary

“Blind belief in authority is the greatest enemy of truth”

Albert Einstein

WHAT IS PROFESSIONAL SKEPTICISM (PS)



I SA S D E F I N E A N D R EQ U I R E P R O F ES S I O N A L S K E P T I C I S M


• “an attitude that includes a questioning mind, beingalert to conditions which may indicate possiblemisstatement due to error or fraud, and a criticalassessment of audit evidence" ( ISA 200 : Para 13.1)

• Other ISAs also have explicit requirements on PS

• What is the required level of skepticism ?


1. Global concerns over reduced Professional Skepticism(PS) are increasing.

2. Heighten with global financial reporting crisis (2008-2009)

3. It should not be seen as a regulatory issue only

4. It is at the core of audit quality and reliability andconfidence in audited financial statements by users

WHY PAY AT TENTIO N TO THE ISSUE OF PS NOW



W H Y I S P RO F ES S I O N A L S K E P T I C I S M I M P O RTA N T … .


PS is even more important in today’s environment as thechallenges auditors face are compounded by :

• The difficult economic environment and Complex financialreporting regime

• Identification of Fraud Risks

• Pressures from management to perform


W H Y I S P RO F. S K E P T I C I S M I M P O RTA N T I N AU D I T S O F FS S


• Important part of the auditors skill set

• PS is Closely interrelated with Professional Judgement

• PS is particularly essential regarding decisions about, e.g:

• To accept or reject a client

• The nature, timing and extent of audit procedures to perform

• Whether SAE has been obtained and whether more needs to be done

• Evaluation of management’s judgments

• The drawing of conclusions based on the audit evidence obtained

• Alertness to fraud

PS enhances the effectiveness of the audit and AQ


W H E N TO A P P LY P S – AT W H AT STAG E O F T H E AU D I T ?


“I Sincerely apologize for what went wrong ..[in our South Africa office]. This is not who were are. We will further strengthen the

monitoring of which clients we choose to work with and how we handle potentially sensitive client engagements”

• Apology of the International Chairman of a Big 4 audit firm inconnection with the on-going Gupta Scandals in South Africa.(See The East African News Paper, Sept 23-29th, 2017 Page 25)


P S I S R E L E VA N T A N D N E C E S S A RY T H R O U G H O U T T H E AU D I T


1. Engagement Acceptance

2. Planning and performing risk assessment

3. Performing the audit – Obtaining and evaluatingaudit evidence, Staff support and review of work

4. Conclusion and Report


P S I S R E L E VA N T A N D N E C E S S A RY T H R O U G H O U T T H E AU D I T


3. Performing the audit – Obtaining and evaluatingaudit evidence, Staff support and review of work

4. Conclusion and Report

Documentation of Professional Skepticism – Notdocument, not done !


1. Determination – ability to determine what is wrong orright

2. Intellectual Curiosity and clear headedness – is thisright/normal ?

3. Seeing the big picture and ability to see connections inseemingly unconnected pieces of information

4. Ability and instinct to challenge where appropriate

5. Critical thinking and application of good judgement – toavoid judgement biases and traps

WHAT PERSONALI TY TRAITS DO YOU NEED



1. Availability Heuristic

2. Anchoring bias

3. Confirmation bias

P I T FA L L S – S O M E C O G N I T I V E B I A S E S & E T H I C A L I S S U E S



4. Overconfidence

5. Lack of Integrity

6. Loss of independence

P I T FA L L S – S O M E C O G N I T I V E B I A S E S & E T H I C A L I S S U E S


I FAC S M P CO M M I T T E E — OV E RV I E W

• To represent interests of SMPs

• Comprised of 18 members and 18 Technical Advisers from 22 countries

• Three main areas of focus:

• Regular input to policy, regulation, and international standards

• Develop and share tools, guidance, standard support

• Promote the visibility and recognition of SMPs and SMEs

• Visit www.ifac.org/SMP


http://www.ifac.org/SMP

AVAILABLE RESOURCES TO SMP S


• The Bi-Annual SMPs survey informs activities of IFAC/SMPC & PAOs

• Available resources to support SMPs at www.ifac.org/SMP & IFAC Global Knowledge Gateway www.ifac.org/Gateway

1. Guide to Practice Management

2. Guide to using ISAs in an Audit of SMEs

3. Guide to Quality Controls for Small and Medium Sized Practices

4. Guide to Review Engagements (ISRE 2400)

5. Guide to Compilation Engagements (ISRS 4410)

http://www.ifac.org/SMP

http://www.ifac.org/Gateway

AVAILABLE RESOURCES TO SMP S …


6. Brochure: Choosing the Right Service: Comparing Audit, Review, Compilation and AUPs

7. Creating Value for SMEs through Integrated Thinking

8. Forthcoming publication – AUP Engagements A Growth and Value Opportunity

2017/10/10 Professional Skepticism and Audit of Financial Statements

17

The concept of Professional Skepticism is very important to auditors since it has a direct impact on the effectiveness of audits and audit quality. It is not easy to apply but if audits are said to have complied with ISAs then auditors have to apply and be seen to have applied PS in the audit of FSS.

There is increasing belief that beyond auditing , PS is also applicable to otherprofessional accountants involved in business and other services e.g.projection of share prices, Taxation, valuations, Estimates etc

All professional accountants need to STAND BACK and ASK – Is this right ? Is this all there is to the explain what is happening ? Have considered all the alternatives ? Etc etc etc

It should not be left to standard setters alone, all stakeholders holders(Trainers, regulators etc )should help cultivate a sceptical mind set.

CO N C LU S I O N


www.ifac.org

SNG Sejjaaka Kaawaase & Co

Certified Public Accountants

31 Bukoto Street, Kololo

Kampala UGANDA

Phone : +256 787 518824

[email protected] cpa.ug

www.sng.za.com | www.cpa.ug

http://www.ifac.org/

mailto:[email protected]

mailto:[email protected]

http://www.sng.za.com/

http://www.cpa.ug/

Documents

The Importance of Professional Skepticism in an audit of ... · The Importance of Professional Skepticism in an audit of Financial ... It is at the core of audit quality and reliability